Sciele Pharma Inc. Q4 2007 Earnings Call Transcript

Sciele Pharma Inc. (SCRX)

Q4 2007 Earnings Call

February 26, 2008 4:30 pm ET

Executives

Joseph T. Schepers - Director of Investor Relations

Patrick P. Fourteau - Chief Executive Officer and Director

Edward Schutter - President and Chief Operating Officer

Darrell Borne - Executive Vice President, Chief Financial Officer, Secretary and Treasurer

Larry M. Dillaha, M.D. - Executive Vice President, Chief Medical Officer

Analysts

Annabel Samimy - UBS

Donald Ellis - Thomas Weisel Partners

Enrique Iribarne - Roth Capital Partners

Angela Larson - SIG

Gur Roshwalb - Piper Jaffray

David Buck - Buckingham Research Group

David Steinberg - Deutsche Bank

Ken Trbovich - RBC Capital Markets

Presentation

Operator

Welcome to the Sciele Pharma Inc. conference call. (Operator Instructions) At this time, I would like to turn the call over to the Director of Investor Relations, Mr. Joe Schepers.

Joseph T. Schepers

Good afternoon and welcome to Sciele Pharma’s fourth quarter and year-end 2007 earnings conference call. I am Joe Schepers, Sciele’s Director of Investor Relations. Our speakers on the call today are Patrick Fourteau, Chief Executive Officer; Ed Schutter, President and Chief Operating Officer; and Darrell Borne, Chief Financial Officer.

Please note that this presentation contains forward-looking statements which are subject to risks, uncertainties and other factors beyond the company’s control that may cause actual results, performance or achievements to differ materially from those anticipated in any forward-looking statements.

These risks, uncertainties and other factors include, but are not limited to those described under “Business Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2006, and our quarterly reports on Form 10-Q as filed with the SEC. The company does not undertake to update the forward-looking statements to reflect future events or circumstances.

I would like to turn the call over to Patrick Fourteau.

Patrick P. Fourteau

We are pleased to report strong financial results for the fourth quarter of 2007 resulting in our highest year of revenues and earnings while we continue to diversify our product portfolio and build a substantial product pipeline.

Full year’s revenues of $382.3 million were up 30% over 2006. For full year 2007, we generated EPS growth of 30% before restructuring and Sular related inventory charges versus 2006. We significantly increased our R&D investment for the full year 2007 to $37.5 million from $16.6 million the previous year, which included $4.8 million or $0.09 per diluted share of in-process R&D charges related to the modification required of the Addrenex investment for the third quarter of 2007.

As was noted in our earnings press release today, we were notified by our auditors today that we would be required to change the accounting method for our Addrenex investment, which was completed in the third quarter of ‘07. We intend to file our revised third quarter 2007 10-Q and final 2007 10-K by the end of this week. Darrell will have a more in-depth discussion of our financial results later in the call.

In the first quarter of 2007, we took important steps to lay the foundation for growth in 2008. It is very clear that our success in 2008 will be linked to two key factors. First, the successful conversion of Sular to new Sular, and second, the successful execution of seven new product launches planned for 2008. To that end, we have promoted Ed Schutter to President and Chief Operating Officer. He will be focusing on the execution of this two-key dimension.

In December ‘07, also we restructured the sales force that was really based on changes in the current sales environment and also a desire to capitalize on key therapeutic areas of growth as well as the execution of the new Sular switch and the launch of the seven new products. Let me recapitulate the seven new products that we are talking about for 2008.

In January of 2008, we began promoting Prandin with a newly created diabetes sales force. In February, we launched Fenoglide that is being promoted by both the diabetes sales force as well as the cardiovascular sales force.

In March, we launched the new Sular, which will be promoted essentially by the cardiovascular sales force and Allegra ODT that will be promoted by the pediatric group.

In the second half of ‘08, we expect to launch a new formulation of Prenate Elite, and upon FDA approval Aquelle which is a new head lice asphyxiation product as well as PrandiMet.

The restructuring of our sales team enabled us to create a new diabetes sales force and strengthen our pediatric group. We moved away from those mirrored sales force structure of 450 PCP reps to a cardiovascular focused sales team of 225 sales reps and the diabetes focused sales force of 175 sales reps.

We believe this newly created diabetes sales force will allow us to maximize sales in the Type II diabetes area with Prandin and Fortamet and with Fenoglide for mixed dyslipidemia. You may recall that in the third quarter of 2007, we expanded our pediatric sales force to 100 sales reps.

Now obviously we are very busy on the sales and marketing as you can see, but also we have quite few things burning on the clinical and regulatory area. We’ll be focusing on moving products through our pipeline.

As we announced last week, Addrenex filed an NDA for CloniBID to treat hypertension. We have a PDUFA date for the new head lice product of July 15, 2008. We expect to file our NDA for glycopyrrolate in mid 2008 and we expect to complete our Phase III efficacy portion of the study for pravastatin/fenofibrate combination in the first half of ‘08.

This is an exciting time for the company and we expect 2008 to be another significant year of growth for Sciele. I will now turn the call over to Ed Schutter to cover the performance of our sales group and our product pipeline in greater detail.

Edward Schutter

To begin with, net revenues for the company’s cardiovascular products, which key products include Sular, Triglide, Fortamet and Nitrolingual Pumpspray increased 5% to $61.3 million in the fourth quarter of ‘07 compared with $58.4 million in the year earlier period. This increase was primarily due to the growth of Sular, Triglide and Nitrolingual Pumpspray.

Cardiovascular/diabetes products accounted for approximately 58% of total company sales in the fourth quarter of ‘07. For 2008, our 225 cardiovascular sales reps are now focused primarily on the conversion to new Sular, Nitrolingual Pumpspray and Fenoglide.

Total prescriptions of Sular increased 7% in ‘07 versus ‘06 according to IMS Health New Prescription Audit data. Total prescriptions were up 2% in the fourth quarter of ‘07 compared with the fourth quarter of ‘06 also according to IMS NPA data. Since the launch of generic amlodipine, Sular prescriptions have remained relatively stable.

An important milestone for the company was the approval of the new Sular formulation by the FDA on January 2, 2008, which we’ll be launching in the middle of March. We’ve already been in active preparation for this and have completed numerous Sular pre-launch activities.

I’d now like to provide you with a brief overview of the progress on the conversion of new Sular formulation. We selectively discontinued shipping the current formulation of Sular in January 2008 to deplete the supply of Sular at the distributors and pharmacy chains. We plan to start shipping new Sular in mid-March. Therefore, we expect to record minimal sales of Sular in the first quarter of ‘08, with Sular revenues ramping back up in the second quarter of ‘08 and for the rest of the year.

I want to emphasize that we realize how important it is for us to make sure that we do everything possible to ensure the flawless execution of our convergent strategy and that we are very optimistic that we will be successfully switching patients from old Sular to new Sular.

Critically important to that success has been our ability to obtain the same level of managed care coverage with the new Sular formulation as we previously had with the old formulation. We are now working with third-party payer information compendiums such as MetaStat and First DataBank so that their systems will have all the required information for the product listing.

In addition, a majority of chain and mail order pharmacies are now working to assist us with appropriate messaging to patients for the conversion. Our sales reps are already in the pre-launch phase with pharmacies and physicians who currently write prescriptions for Sular.

During the fourth quarter of ‘07, we also strengthened our position in the diabetes market through an exclusive U.S. marketing agreement with Novo Nordisk to market Prandin (repaglinide), and upon FDA approval, PrandiMet, which is a combination of repaglinide and metformin, for the treatment of Type II diabetes.

Both of these products fit extremely well into the company’s diabetes product portfolio and are an excellent complement to Fortamet. Prandin is already showing renewed signs of growth in February 2008 according to IMS Health New Prescription Audit data.

Total prescriptions of Triglide increased 47% in 2007 compared with ‘06, also according to IMS NPA data. Last week, the company launched Fenoglide, which is the lowest dose fenofibrate on the market to treat mixed dyslipidemia. Fenoglide utilizes LifeCycle Pharma’s Meltdose technology, which is designed to provide enhanced absorption and greater bioavailability.

We expect to increase our share of the fenofibrate market with the introduction of Fenoglide. I am confident that our newly created diabetes sales team of 175 sales reps will be able to capitalize on the opportunities in the growing Type II diabetes market and capitalize on the opportunities with our Type II diabetes product and fenofibrate products.

Now, for the women’s health business, net revenues of the company’s women health products of which the key products include Prenate DHA, Prenate Elite and Zovirax increased 12% to $19.4 million in the fourth quarter of ‘07 compared with $17.3 million in the year-earlier period. Women’s health products represent approximately 19% of total sales in the fourth quarter of ‘07.

At the end of June ‘07, the company introduced Prenate DHA and we’re very pleased with the success of this product launch. Total weekly prescriptions for Prenate DHA as of the week of February 15th were approximately 8,700 according to IMS NPA weekly data. Prenate DHA has been the most successful launch in the prenatal DHA market based on IMS NPA data when you compare it to all other prenatal DHA product launches at six months post-launch.

Net revenues for the company’s pediatric and other products, of which the key products include Orapred ODT, Methylin Oral Solution and Chewable Tablets and Allegra Oral Solution increased to $24.3 million in the fourth quarter of ‘07 compared with $3.8 million in the prior year period.

Pediatric and other products represented approximately 20% of the company’s total sales in the fourth quarter of ‘07. Please keep in mind that sales of many of our pediatric products are subject to seasonal fluctuations coinciding with the spring and fall allergy seasons.

Yesterday, we announced that Sciele has expanded its partnership with Sanofi-Aventis, signing a new three-year exclusive agreement to market Allegra ODT and Allegra OS in the US, with an option to renew in the future. A solid base of products and new product launches, including the launch of Allegra ODT and a new head lice asphyxiation product during the second half of ‘08, are expected to create additional pediatric growth opportunities.

Now, I’d like to review the company’s product pipeline, which includes seven products, two are under review at the FDA and five are currently in pivotal Phase III trials. First, an update on the new head lice product, as you’ve seen in our press release last week, the FDA extended the PDUFA date to July 15, based on a change in the closure configuration for the product container.

Upon FDA approval, we expect to launch this product in the summer of ‘08 before children go back to school in the fall. The previous PDUFA date was April 15 ‘08. We remain very optimistic about this product, which utilizes a novel mechanism of action developed by our partners, Summers Laboratories. Upon FDA approval, it will be the first prescription medication that kills head lice by asphyxiation instead of utilizing a neurotoxic pesticide.

On August 15, 2007, the NDA accepted Novo Nordisk NDA for PrandiMet, and upon FDA approval Sciele expects to launch this product in the U.S. during the second half of 2008. PrandiMet represents another excellent growth opportunity for the company in the large and expanding market for Type II diabetes treatments.

In the summer of 2007, the company licensed CloniBID and Clonicel from Addrenex Pharmaceuticals, CloniBID for the treatment of hypertension and Clonicel for attention deficit/hyperactivity disorder. CloniBID and Clonicel are both 12-hour, sustained-release formulations of clonidine hydrochloride.

This new formulation for both products is designed to improve the side effect profile of clonidine by eliminating the initial high-peak blood levels seen with immediate-release clonidine. Patient enrollment for the Phase III trials using Clonicel for ADHD was initiated in October of 2007.

Last week, we were pleased to announce that Addrenex Pharmaceuticals filed a 505(b)(2) NDA with the FDA for CloniBID to treat hypertension. Upon FDA approval, Sciele expects to launch this product in the first half of 2009. As we discussed in the past, there are three patents that cover CloniBID and Clonicel, which expire in 2013. We also have additional patents pending.

In October 2007, the company completed enrollment of patients in a pivotal Phase III clinical trial using pravastatin and fenofibrate to treat mixed dyslipidemia. The Phase III clinical trial, which compares the efficacy of the combination of pravastatin and fenofibrate versus pravastatin or fenofibrate alone, is being conducted at approximately 75 sites in the United States. The company expects to complete this efficacy study in the first half of 2008.

Also in October 2007, Plethora Solutions initiated Phase III clinical trial patient enrollment for PSD502 for the treatment of premature ejaculation. PSD502 is a unique, proprietary, rapidly absorbed formulation of two well-established local anesthetics, lidocaine and prilocaine, dispensed in a metered dose spray. The efficacy studies are expected to be completed by the end of 2008.

In September 2007, Sciele completed enrollment of patients in a pivotal Phase III safety trial, utilizing a liquid formulation of glycopyrrolate to treat chronic, moderate-to-severe drooling in pediatric patients. This condition often results from cerebral palsy, as well as from other neurological disorders.

The company expects to file an NDA with the FDA in mid-2008. Glycopyrrolate did receive an orphan designation from the FDA previously, which provides seven years of marketing exclusivity after the FDA grants marketing approval.

To summarize, we are very confident in our ability to successfully execute the new Sular conversion. The company’s future growth will be driven by our new product launches, which is the direct result of the successful completion of seven business development transactions during the past year.

We are particularly excited about the near-term growth opportunities in pediatrics, the continued growth of Prenate DHA, and our Type II diabetes and fenofibrate products, which are promoted by our newly created diabetes sales force.

We expect that 2008 will be another year of solid growth and progress. We are focused on continuing to diversify and grow our product portfolio, and we will continue to invest in our product pipeline for the long-term growth of the company. We intend to build and expand our partnerships as recently demonstrated in our new agreement with Sanofi-Aventis. Our primary objective is to focus on execution excellence with numerous new product offerings.

Now, I’d like to turn the call over to Darrell to discuss the financial highlights in more detail.

Darrell Borne

As Ed and Patrick have discussed, this has been another strong quarter for Sciele Pharma. We had a solid increase in fourth quarter 2007 revenues and grew our EPS, while investing significantly more in product development.

As Patrick discussed today, we were notified by our auditors we would be required to change the accounting method for the investment in the Addrenex investment in the third quarter of 2007 from the cost methodology to the equity methodology, resulting in a pre-tax charge of $4.8 million or $0.09 per diluted share, which will be taken in the third quarter of 2007.

This change has been reflected in today’s earnings press release. As a result, we will re-file the third quarter 2007 10-Q, and we intend to file this along with our 2007 10-K later this week.

For the three months ended December 31, 2007, net revenues increased 32% to $105 million. Net income for the fourth quarter of 2007, including restructuring and Sular-related inventory charges, was $11.1 million compared to $13.6 million in the same period of 2006. Sciele recorded pre-tax restructuring charges of $8.9 million or $0.21 per share in the fourth quarter of 2007.

These restructuring charges included Sular inventory-related charges of approximately $5 million and a realignment of the sales force of approximately $4 million that resulted in the reduction of approximately 100 sales reps and sales management positions. We expect the sales force restructuring to provide an annual savings going forward of close to $10 million a year.

Diluted earnings per share, including the effect of the restructuring charges and Sular related inventory charges, were $0.31 in the fourth quarter of 2007 compared with $0.39 in the fourth quarter of 2006. Excluding the impact of the restructuring charges and Sular related inventory charges, diluted earnings per share were $0.52 for the fourth quarter of 2007.

Earnings before interest, taxes, depreciation, amortization and stock compensation expense or EBITDAS, a non-GAAP measure, were $27.7 million in the fourth quarter of 2007, compared to $26.9 million in the prior year period. The company believes that EBITDAS is a meaningful non-GAAP financial measure as an earnings-derived indicator that approximates cash flow. EBITDAS, as defined by the company, may not be comparable to similar measures reported by other companies.

Cash flow per share, also a non-GAAP measure, was $0.73 per diluted share for the fourth quarter of 2007, compared with $0.53 in the fourth quarter of 2006. We define cash flow per share as net income, plus depreciation and amortization, net of taxes, and stock-based compensation expense net of taxes.

The company believes that cash flow per share is a meaningful non-GAAP measure of approximate cash flow on an EPS basis, which is utilized by the financial community to evaluate companies. Cash flow per share may not be comparable for similar measures reported by other companies.

Gross margins, as a percentage of sales, were 85% in the fourth quarter of 2007 compared with 87% in the fourth quarter of 2006. This decline in gross margins resulted primarily from the restructuring charges related to the Sular launch inventory write-offs.

Selling, general and administrative expenses were $55.5 million in the fourth quarter of 2007, compared with $38.3 million in the year earlier period. The increase in SG&A expense was primarily due to restructuring charges for the sales force, higher royalties and commissions, and new marketing programs for certain products.

Research and development expenses were $9.4 million for the fourth quarter of 2007 compared with $5.3 million for the fourth quarter of 2006. This increase was primarily related to the new Sular formulation and expenses associated with the Phase III clinical trials of glycopyrrolate and the pravastatin-fenofibrate combination. Our R&D expenses in the fourth quarter of 2007 were 9% of total sales.

There was also an increase in depreciation and amortization expense in the fourth quarter of 2007 to $7.8 million, compared to $6.1 million in the fourth quarter of 2006. This increase was primarily the result of amortization associated with the Alliant Pharmaceutical acquisition.

We ended 2007 with cash, cash equivalents and marketable securities of approximately $188 million, compared with $166 million at the end of 2006. During the fourth quarter of 2007 alone, the company repurchased approximately $13 million worth of shares or 620,640 shares of its common stock through its share repurchase program.

During the full year of 2007, we repurchased approximately $34 million worth of stock or 1.5 million shares of our common stock for the company’s repurchase program. As of December 31, 2007, approximately $20 million was available for additional share repurchases under the company’s share repurchase program.

Turning our attention to guidance for the full year of 2008, we are reaffirming our full year 2008 revenue and diluted EPS guidance. We expect revenues to be in the range of $440 million to $455 million, representing an increase of approximately 15% to 19% over 2007.

We expect diluted earnings per share to be in the range of $1.97 to $2.07 per diluted share for full year 2008. This guidance assumes R&D expenses of approximately 8% of revenues for 2008 and does not include any unapproved products or any potential additional restructuring charges related to the new Sular conversion.

That concludes our prepared remarks.

Question-and-Answer Session

Operator

(Operator Instructions) And we will go first to Annabel Samimy - UBS.

Annabel Samimy - UBS

On the Sular, have you started drawing down inventories before January? It seems like the cardiovascular was a little bit lighter than we would have expected. Have there been any major changes in inventories or changes in rebating for the fourth quarter?

Darrell Borne

Yes, we actually did have lower sales in the fourth quarter versus the third quarter Sular sales. You are right, that was by design getting obviously ready for the launch in the first quarter.

Annabel Samimy - UBS

And you mentioned that you had some pre-marketing activity for Sular. What kind of a feedback have you started getting from some of the sales reps after the launch who has these pre-marketing activities going on?

Edward Schutter

It’s actually been good feedback. We’ve had a pre-launch campaign going on for several weeks now where we’ve been into pharmacies and physicians, particularly in the physicians’ offices focusing on the retail nurses. So if and when they get a call to convert the prescription that they will be totally aware of the new product coming in.

Feedback has been very positive. We’ve also been working obviously in other ways with chain headquarters and the mail services accounts as well to make sure that they help us communicate the message of new Sular.

Annabel Samimy - UBS

On a pipeline question for CloniBID, can you give us a sense of whether there is any measure of sedation with CloniBID in a Phase III I know is a PK study? But I guess your whole point is you’re trying to match the PK of Catapres patch, and it seems in the label that the Catapres patch refers to the same types of side effects, sedation and drowsiness as the oral quantity. And so could you help us understand how you’re going to differentiate CloniBID aside from just PK?

Larry M. Dillaha, M.D.

They actually did measure sedation in trial. It was a little more than just a PK study, they actually had patients in there. I don’t think we even have enough numbers yet, but they had very good results in relation to sedation. So, I think we’re very happy with the results as they stand.

Annabel Samimy - UBS

With the five of five being cured, are you going to be able to find a way to put that in a label or is it primarily going to be on marketing?

Edward Schutter

We will do everything we can to find a way to put it in the label.

Larry M. Dillaha, M.D.

Just to reiterate on the patents there, we do have three patents that expire in 2013 for CloniBID and Clonicel.

Operator

We will go next to Donald Ellis - Thomas Weisel Partners.

Donald Ellis - Thomas Weisel Partners

Regarding the cardiovascular sales that you recorded in the December quarter, can you give us a rough idea how much was that impacted by the de-stocking of the old formulation of Sular?

Darrell Borne

We don’t give out obviously quarter-over-quarter changes or the annual amounts for any particular product, but you are in the range of $5 million plus.

Donald Ellis - Thomas Weisel Partners

And then back to a comment you made about the March quarter of ‘08. Did you say you plan to record zero sales for Sular?

Darrell Borne

What we are doing is clearly not shipping old Sular as we bleed down the chain inventory. Now, obviously we can’t let them completely bleed it away to zero because otherwise we’d lose scrips, so we are selling some product but very, very minimal only to prevent out stockings.

Donald Ellis - Thomas Weisel Partners

What about stocking in new Sular formulation will that occur in the March quarter?

Darrell Borne

Yes, it will, that will occur in the March timeframe.

Donald Ellis - Thomas Weisel Partners

So our case, we’re not going to expect to see a huge decline sequentially in Sular sales December quarter versus March quarter?

Darrell Borne

Well, you will, yes. You should see some decline because what you have is literally no old Sular sales and as I mentioned before approximately one month of new Sular sales. Remember the launch of the new Sular will be toward the second half of March, which will obviously be second half of March, beginning of April.

Donald Ellis - Thomas Weisel Partners

Okay, but you have to going to stock the channel at the same time.

Darrell Borne

Correct, that’s exactly what I am talking about.

Donald Ellis - Thomas Weisel Partners

Can you give us the rationale for reducing the number of sales reps by 100?

Joseph T. Schepers

Yes, specifically what we did is last year we were focusing with Sular, we were focusing on Sular users and prospects, in other words, physicians that were writing CCB prescriptions but were not writing Sular. And then we found that we were getting let very little benefit in fruits of our labor with the prospects.

And with the plan to convert current prescribers to new Sular, we wanted to focus our efforts only on Sular users this year anyway and when you look at that number it’s only about 20,000 physicians. So 225 reps, certainly, can cover that very easily and still get a high frequency with those physicians.

Operator

We’ll take our next question from Enrique Iribarne - Roth Capital Partners.

Enrique Iribarne - Roth Capital Partners

We noticed a rather substantial increase quarter-on-quarter on the last line of business. The pediatric and others went from $12.7 million to $23 million, any particular area that grew substantially versus the previous quarter?

Darrell Borne

We had our pediatric division of course that we didn’t have as a comparable to the previous year with the Alliant acquisition was made about mid-year, so in reality that accounted for most of that difference.

Enrique Iribarne - Roth Capital Partners

Yes, I’m talking sequentially.

Darrell Borne

Yes, if you look at a quarter-over-quarter from last year, remember, we had some issues with the Furadantin inventories where we had some manufacturing difficulties. Obviously the biggest increase there is as a result, as Ed had mentioned, with the Alliant acquisition.

Enrique Iribarne - Roth Capital Partners

And then in the other income expense line is the $1 million all interest or is it another component?

Darrell Borne

It’s primarily the interest related with the COCO, but you also have capitalized financing charges associated with both the COCO as well as the line of credit.

Operator

We’ll go next to Adam Greene – JP Morgan.

Adam Greene – JP Morgan

How much inventory of Sular is still in the channel, any ways to estimate them?

Darrell Borne

Well, Adam, by the end of the quarter we should have bleeded out completely in the first quarter, it should occur prior to quarter end.

Edward Schutter

There will still be a little bit left at retail. But we have to be, as Darrell mentioned earlier, we have to be very careful on how much we bleed out there because we don’t want to leave anybody with none on the shelf.

Adam Greene – JP Morgan

Was Orapred the primary driver of the increased investment, the largest percent of sales in terms of pediatrics division there?

Edward Schutter

Yes. And remember Pediatric is very seasonal too and you get that response in the fourth quarter as well with not only Orapred but also Allegra.

Adam Greene – JP Morgan

On the sales force, can you give us the break, the number or reps you have now on the pediatric and women’s healthcare?

Edward Schutter

Yes it’s 100 reps in the pediatric and 175 in the women’s health and I should have mentioned too that with Allegra OS, and I did mention this in the prepared comments, but we have actually increased our share of the market from 6% to 12% in the first six weeks of this year.

Adam Greene – JP Morgan

So the cuts were in the diabetes?

Edward Schutter

Cuts in diabetes went down to 175, cardiology stayed at 225. We had two 225 both promoting cardiology products and diabetes with the additional products we needed to get less products in the bag and as I mentioned earlier, we didn’t need to be focusing on all the CCB writers any more.

Adam Greene – JP Morgan

Can you just give an update on Rondec’s products that you don’t seem talk too much about anymore, is that still working on that one?

Edward Schutter

Yes, the Rondec in development, we are now, Darrell can speak to this better than I can, but we are now sorting out exactly the pathway to get it to market and formulations and things like that.

Adam Greene – JP Morgan

Is it still likely to be filed next year?

Larry M. Dillaha, M.D.

Yes, in all likelihood, that will be filed, – you have to slot yourself in these allergy clinical trials, so basically we do is slot for a fall so that would conclude the filing next year.

Operator

We will go next to Angela Larson - SIG.

Angela Larson - SIG

Can you give us a little color on why you cut the women health sales force?

Edward Schutter

Yes, basically in the women’s health, we had put on for the launch of our new Prenate DHA we had put on a 50 rep mirrored concept to try to get us an extra push at the launch base and then we cut it back to 175 at the beginning of this year.

Angela Larson - SIG

So you are not surprising the Street too much on the cardio franchise, if you want to look at it that way, the entire cardio franchise, given all the reshuffling that’s going on the inventories with Sular, should we expect another down quarter like fourth quarter versus third quarter, or should we expect to be relatively flat the fourth quarter?

Darrell Borne

You should expect the revenues to be lower in first quarter than for fourth quarter.

Angela Larson - SIG

And then, we have been there forward according to the launch.

Darrell Borne

That’s right. And that’s what I was trying to explain before on our previous call, you will have lower revenues in first quarter and then building up in second quarter and then more normalized of course in the third and fourth quarters.

Angela Larson - SIG

You began the enrollment and commented last call for ADHD, how is that going?

Joseph T. Schepers

So far so good.

Operator

We will take our next question from Gur Roshwalb - Piper Jaffray.

Gur Roshwalb - Piper Jaffray

You’ve previously guided for the new Sular switch that you hope to capture 80% to 85%, is that correct?

Darrell Borne

Yes, we are targeting in that range as far as RXs are concerned.

Gur Roshwalb - Piper Jaffray

So my two questions are basically, what does that represent in terms of physicians who currently prescribe Sular, and where do you think the other 15% to 20% is going to disappear to?

Edward Schutter

I think the other, we are going to be focusing on about 80% to 85% of the writers with the 20,000 physicians, and the rest of the business is physicians that write one or two prescriptions and it’s another 30,000 physicians. So it’s difficult to reach those.

We hope that our efforts with the pharmacy level and some other mail campaign and other awareness campaigns that we have will actually switch some of those as well. So we think that will work out okay. So, what was the second part of your question?

Gur Roshwalb - Piper Jaffray

You sort of answered it, but where do you think the 15 to 20% of prescriptions disappear to?

Edward Schutter

Yes, it will probably be the physicians that we primarily we’re not going to be able to reach 100%.

Gur Roshwalb - Piper Jaffray

Let me ask it a different way. Are they going to prescribe amlodipine or are they just going to not prescribe?

Edward Schutter

Well, I think yes, in the end if we lose any it’ll be to probably generic amlodipine but remember too that Sular is not a first line drug. It’s a drug that’s used by many physicians in third or fourth line therapy so that these are difficult to control patients that they finally have controlled. And in many cases healthcare practitioners do not take the risk of switching to a new molecule and that disrupting that good control that they finally achieve.

Gur Roshwalb - Piper Jaffray

When can we expect glycopyrrolate data from the Phase III trial?

Edward Schutter

We are looking to have a filing in mid-year. So, we would be probably in the timeframe of roughly around that time.

Operator

We’ll take our next question from David Buck - Buckingham Research Group.

David Buck - Buckingham Research Group

Darrell, on the inventory write-offs for Sular, I assume those are in cost of goods sold. What confidence level would you have that there won’t be any more restructuring type charges for Sular? I know the guidance excludes that, but just wanted to get an assumption for that.

Then for the sales force reduction, do you think the 100 reps that you’ve reduced will need to be added back in some form when you have CloniBID approved for hypertension next year? And then finally, can you just give some sense of what actually you are expecting to happen with generics in terms of timing.

And in terms of EPS progression Darrell, can you give maybe a little bit more sense of what you are expecting for the first half versus second half within the guidance?

Darrell Borne

Obviously the restructuring charges as I had mentioned were Sular related inventory charges that you had mentioned. There is approximately $5 million of that in the P&L, most of that obviously is in the cost of goods sold. You also have samples associated with the Sular write-off as well.

You also have restructuring charges for the sales force, for both sales reps and sales management. We also sold number of vehicles as well as we downsized the sales force. So you’ve got all those charges associated in there as well.

As far as our earnings for the first half versus second half, what you should anticipate clearly in the first quarter you will have lower EPS in the first quarter building in the second quarter. If you are looking at a split between the years, looking at the guidance that we gave of $1.97 to $2.07, you’ll have approximately in the 40% range in the first section of the year and about 60% of the EPS coming in derived from the second half of the year.

The other question you have about the expected Sular additional write-offs, at this point, other than anything associated with returns, we don’t anticipate any additional Sular inventory write-offs.

Edward Schutter

And your question about the sales forces, our model’s always been to remain very flexible to meet the needs of the market and our products. But with that in mind, we’ve got some launches coming in from pediatrics. And we’re currently evaluating for the lice market, how well we can meet the customer needs with the 100 sales representatives that we have. And we’ll probably have to add a small number there we don’t know exact how many right now.

And then also, CloniBID is at the end of the year. Next year, once we get through the Sular conversion and continue to grow it, our thinking right now is that we will utilize that sales force. And we haven’t done the analysis there, but the beauty of that product is it’s a very targeted approach, because we know exactly who the clonidine writers are right now. So you can really focus your efforts in that regard.

David Buck - Buckingham Research Group

What actually is the assumption for when generics come in given that you are now launching the new Sular in late March?

Patrick P. Fourteau

The assumption is that it’s coming June 8. So we are planning everything so that we are clear always on June 8. We don’t believe that it’s going to be like that, but we are planning as is the worse today.

David Buck - Buckingham Research Group

And in terms of any blocking tactics there’s really nothing you can do at this point, you are just waiting for at the intervals or is it something you can.

Edward Schutter

Yes, the only thing that we can do is make sure that all the patients are on new Sular before that occurs.

Operator

We’ll take our next question from David Steinberg - Deutsche Bank.

David Steinberg - Deutsche Bank

Question on the Allegra Oral Disintegrating Tablets and Oral Suspension, you did a great job with the same type of relationship you had with Biovail, and to Biorex, and if I recall it’s accretive fairly quickly or enhancing to earnings fairly quickly after you signed the deal. Should we expect a similar situation here on Allegra?

Darrell Borne

As far as that goes it will be a similar deal where we actually have in this case we get some marketing fees. But we also have some upside potential as far as the growth of the products to the point that you are making.

Obviously, at this point in time as we are launching new Sular, and as we are just now starting to launch a brand new product with ODT, we don’t have any history. So we are not completely clear as to what kind of growth we’ll have. But to your point, it should be accretive from the beginning.

David Steinberg - Deutsche Bank

Since you kept your revenue guidance the same as before you signed this deal as well as your earnings guidance the same, what products perhaps might slip in your guidance if Allegra should be accretive right away?

Patrick P. Fourteau

David, in our view, when we talk about accretive it’s, we are talking about a max of $5 million. So, basically as far as we are concerned, it’s non-significant, it will be accretive, definitely, but it’s not worth changing at this point in time.

David Steinberg - Deutsche Bank

And then on Sular, should we think of this of Sular as a growth product anymore? I mean the last quarter or two quarters we’ve seen either pretty much flat year-over-year growth or declining unit growth, is the purpose here just to keep the franchise flattish or do you think with your new formulation you can actually grow scripts year-over-year?

Edward Schutter

Yes, we think it’s going to remain fairly stable moving forward as you mentioned since, really since generic amlodipine was introduced, and it kind of shook up the market in the middle of last year, our prescriptions, if you look at our new RXs they’ve been almost flat since that period.

We expect that to continue, and we expect, as we mentioned, we think we are going to be very successful in the conversion. We feel very confident and we will be able to maintain that level of business. But, no we don’t see huge growth opportunities in the future for it.

Operator

We’ll go next to Ken Trbovich - RBC Capital Markets.

Ken Trbovich - RBC Capital Markets

I am really trying to get back to the comments around the sales force and the savings that you anticipate, I think if I heard you right earlier in the call you mentioned that you’re going to save about $10 million. But I am little confused because the guidance hasn’t changed. So I am wondering what we’re missing?

Darrell Borne

Well, clearly Ken, as we had mentioned we are launching potentially seven new products next year. So you have launch costs associated with each one of those new products. Obviously in the case of new Sular, we are going to be sampling it very heavily as we launch that. So, obviously some of the savings associated with that sales force will be recouped and spent towards the launch of those products.

Ken Trbovich - RBC Capital Markets

Those launch costs weren’t in the prior guidance?

Darrell Borne

No.

Patrick P. Fourteau

You remember that our approach is very conservative. Those are new products such as Aquelle, also just PrandiMet, we did not include that at all in the guidance. What we do is that we always make sure that we include the cost, and therefore so that we don’t have any bunch of prices.

Ken Trbovich - RBC Capital Markets

So the incremental revenue is offsetting incremental expenses.

Patrick P. Fourteau

No, we don’t have incremental revenues in the guidance so that we are clear for everybody on the call. We don’t put incremental revenues. But what we always plan for is that we plan for the expenses associated with that.

For example, in the case of head lice products, we are already starting very heavy promotional campaign with school nurses to prepare the ground. We don’t have yet the approval of the product, yet we are incurring the expenses. We have to finance those expenses and Darrell added my motto is obviously that you only pay with what you got in your pocket.

Ken Trbovich - RBC Capital Markets

So the pre-launch expenses are there without the revenues.

Darrell Borne

Exactly, correct.

Ken Trbovich - RBC Capital Markets

And then Darrell, just getting back to the simple language about Addrenex, I guess I am a little confused in the sense that normally when I hear about equity method accounting, it also entails ongoing recognition of the expenses associated with profits associated with the other entities, is that going to be the case in this situation?

Darrell Borne

That will be the case going forward. We have approximately a 20% position in the Addrenex company itself and that will appear in the other income expense line going forward. But as far as expenses go, obviously they are not a huge company nor incurring a whole lot of expense.

Ken Trbovich - RBC Capital Markets

But was that included then, in the fourth quarter financials that were just reported?

Darrell Borne

That is correct. Now the one-time charge we will have to go back and restate our third quarter earnings.

Ken Trbovich - RBC Capital Markets

No, but I am just saying that their losses on a pro rata basis were in your fourth quarter numbers?

Darrell Borne

Correct.

Ken Trbovich - RBC Capital Markets

And then is that included in the guidance then going forward for ‘08?

Darrell Borne

Yes, it is.

Ken Trbovich - RBC Capital Markets

So the cost of the trials associated with ADHD, you will have 20% expense on your R&D line?

Darrell Borne

Yes. Whatever Addrenex incurs as far as their P&L our portion of that will be included in other income net.

Operator

Next we will take a follow-up from Angela Larson with SIG.

Angela Larson - SIG

Could you give us a little color on Fenoglide versus Triglide, how you look for them to grow together or one to cannibalize the other or what your expectations are on that, and even the end markets, are the markets comparable?

Edward Schutter

Yes, I think quite honestly, Fenoglide is now going to be the lowest dose and the best technology in the market, so we’re going to be focusing on many of the physicians that are writing Triglide right now. We are not taking Triglide off the market but over time it will replace many of the Triglide prescriptions and we think as I mentioned earlier it’s going to grow our overall Fenofibrate share.

Operator

Next we will take a follow-up from Ken Trbovich with RBC Capital Markets.

Ken Trbovich - RBC Capital Markets

Did you recognize the shipments in the third quarter on Triglide during the fourth quarter?

Darrell Borne

The shipments of Triglide, no, we didn’t ship that until fourth quarter. Remember we said we had an issue as far as receiving Triglide product in the third quarter and there was approximately about $5 million of that that we shipped in the fourth quarter.

Ken Trbovich - RBC Capital Markets

So it was shipped in the fourth quarter?

Darrell Borne

Correct.

Operator

And at this time, I would like to turn the program back over to Mr. Ed Schutter for any addition or closing comments.

Edward J. Schutter

Well, thank you everybody for joining the call today. As always, if you have any additional questions, feel free to contact us and take care and have a good evening everybody.

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Comments

[Stephen Tve...:]

You can safely and effectively kill lice with salt water or a sauna - learn how to kill lice without killing yourself or the earth......

The head louse (Pediculus humanus capitas) (DeGeer), the body louse (Pediculus humanus humanus) (Linnaeus) and the crab louse (Pthirus pubis) (Linnaeus) all occur on humans. All three cause considerable skin irritation as they feed on human blood or crawl on the body.

Human lice can establish and maintain themselves only on humans. A louse cannot hop or jump. They can, however, crawl fast. They are usually transmitted only through close personal contact. They are less frequently transmitted through the sharing of personal articles or toilet seats. For head lice, this includes combs, brushes and other grooming aids, hats, headbands, helmets, caps, headrests, wigs, curlers or other headgear, especially when these items are stored in shared lockers. They spread or infest by crawling, they live by biting and sucking blood from the scalp and can survive for up to 48 hours off a human head, and the nits on a hair shaft can survive from 4 - 10 days - so vacuum thoroughly and/or spray/clean with diluted Safe Solutions, Inc. Enzyme Cleaner with Peppermint.

Important Note: Pediculicide POISONS do not remove nits and are dangerous. Among the reactions to poison shampoo or lice "treatments" are seizures, mental retardation, many different allergies and respiratory problems, strange tingling, burning, itching, attention deficit disorders, brain tumors, leukemia, cancer and death.

I have used a sauna and/or salt water to safely and effectiely kill lice (but the nits remain).

I have also used ½ oz. of Safe Solutions, Inc. Lice R Gone® Enzyme Shampoo and/or their Enzyme Cleaner with Peppermint per shampoo-type application to safely remove both lice and nits in a few minutes. These non-poisonous enzyme shampoos make the hair so slick lice and nits can't stick and lice can not live off the body for very long.

If you are still having lice problems, read the latest chapter www.thebestcontrol2.co....

2008 Mar 08 09:43 AM